Judge rules for town in Hilton Head business-fee suit

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Judge rules for town in Hilton Head business-fee suit

By TOM BARTON
tbarton@islandpacket.com
Published Wednesday, February 8, 2012   |  694 Words  |  

The Town of Hilton Head Island has won a ruling against a laser-component manufacturer that asserts the town charged it excessive business-license fees.

But the legal wrangling might not be over.

The ruling Tuesday by Beaufort County Master in Equity Marvin Dukes III follows a nearly six-year dispute involving Kigre, which was sued by the town after challenging efforts to collect payments on business-license fees based on its gross receipts.

Kigre, operating on Hilton Head since 1986, has been paying the minimum amount of the fee -- about $62 per year -- and argued it was exempt from paying more, primarily because most of its sales occur outside South Carolina. Kigre said its fee should be based only on what it sells in the state.

Town officials said the company could claim such an exemption if it pays a license fee elsewhere, but it does not.

Dukes agreed. He said the business-license ordinance is legal, and Kigre is required to pay the fees based on gross income.

State courts have ruled that municipalities have the right to impose license fees on companies doing business within their limits, even if a portion of that business is done or completed outside the town or city, Dukes said. Kigre challenged the 28-year-old business-license ordinance on several fronts in its pleadings, saying it was written unfairly and enforced arbitrarily.

The company argues the town's business-license ordinance is discriminatory because it exempts certain small businesses from paying the fees and charges different rates to different businesses based on what it says is an outdated classification system.

The town denied the claims, and Dukes said there was no evidence to support the accusations.

Dukes said the town's classification system is reasonable and members of each class are treated equally. He also said the town has the right to exempt certain businesses "to promote local small businesses that sell locally produced, caught or grown products."

Tom Taylor, Kigre's attorney, said the company plans to appeal. He maintains that U.S. Supreme Court rulings require the town to apportion income on sales from manufactured goods sold outside the state.

The dispute began when town officials inquired about the few businesses that pay the minimum fee. After staff determined Kigre should pay more, it had Kigre's tax documents audited. The town filed suit in 2006 to collect more than $41,000 in unpaid fees and penalties for the tax years 2002-05.

The company paid under protest, which should have triggered a hearing before Town Council. Because of an oversight, a hearing was not held, according to town staff.

Hilton Head returned the money and eventually dropped its pursuit of the fees and penalties during trial, admitting it made procedural mistakes in seeking that money. However, other issues remained unresolved until Tuesday.

Should the town again audit Kigre -- which continues to pay the minimum amount -- and assess a higher fee, the company will appeal to Town Council and argue its case, Taylor said.

Town attorney Gregory Alford said the town plans to determine what Kigre should have paid since 2007 and charge the company that amount.

"The town felt it was correct in its interpretation, and the court verified that," Alford said. "... Kigre, but for the fact they have a confused notion about business-license fees, is the type of business we want on Hilton Head. It's a good business. But when you lose, you've got to pay."

The town uses revenue from business-license fees to pay for basic operations and services, including public safety, according to the town's budget.

Follow reporter Tom Barton at twitter.com/EyeOnHiltonHead.

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  1. Trial over Hilton Head's business licenses adjourns without resolution: Dec. 9, 2010
  2. Trial begins in dispute over Hilton Head business fees: Dec. 8, 2010